S&P Cuts Berkshire Hathaway Inc. Rating

Credit rating agency Standard and Poor’s cut its rating for Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) by one notch from AA+ to AA on Thursday. S&P said that the downgrade was due to the diversified business conglomerate heavy dependence on its insurance businesses for its dividend income. However, the rating agency maintains AA+ rating for Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s insurance operations.

S&P Revised Its Criteria

The rating cut for Warren Buffett-run company comes after Standard & Poor’s revised its criteria to assess creditworthiness of insurance companies. The agency noted that Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) has a high appetite for equity investments which has led to volatility in the insurance units’ capital. As a result, its insurance operations doesn’t have adequate capital that S&P typically expects for AA+ rating category.

S&P said that the railroad company Burlington Northern Santa Fe, LLC (NYSE:BNI) is the only non-insurance unit of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) contributing to a significant part of the total dividend paid to the holding company. S&P and every other credit rating agency had a triple-A rating on Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) until the 2008 financial crisis. S&P downgraded that to AA+ in 2009. The rating agency cited several factors back then, including worries about its derivatives portfolio and succession of Warren Buffett. Later, Warren Buffett said in his 2012 letter to shareholders that there is a successor, there has been no official announcement about who will be the next CEO.

Rating Cut Won’t Have Any Effect On Berkshire Hathaway

S&P’s rating outlook on Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is negative, indicating that the company could face another rating cut. The credit rating agency would cut the rating again if the company’s insurance operations see deteriorating capital levels. The downgrade is unlikely to have any effect on Berkshire Hathaway Inc, says Eric Holm of Wall Street Journal. When the Omaha-based company lost its coveted AAA-rating, there was no impact on borrowing costs when its businesses wanted to raise debts.